Saudi Arabia opens doors to auto companies

Saudi Arabia is paving the way for investment from the global auto industry to build on the successes manufactur¬ers based in the country are already enjoying. A presentation hosted in mid-2013 in Detroit by the U.S. – Saudi Arabian Business Council attracted over 200 delegates, including prominent government representatives and executives from the likes of Ford, General Motors and Chrysler.

Automotive Industries (AI) asked Edward Burton, CEO and President of the U.S.-Saudi Arabian Business Council (USSABC), what role the automotive industry plays in the Saudi government’s diversification master plan.

Burton: The automotive industry is an integral part of the Saudi Government’s plan to diversify towards a non-oil economy that capitalizes on the country’s current strengths. At our conference in Detroit, H.E. Dr. Tawfig Alrabiah, Minister of Commerce and Industry, noted that Saudi Arabia is well aware that more than oil and gas is needed to sustain the country. In pursuit of that, petrochemicals, advanced plastics, and an automotive industry are being developed to inspire new industries, create new jobs, and expand exports

AI: What are some of the plans for the auto zone?

Burton: Companies in Saudi Arabia have identified specific product lines and training programs that will expand automotive growth. NICDP will oversee the automotive cluster program and develop the Auto Zone which will house community living areas, suppliers and services, OEMs, shared facilities that focus on vocational training, and the required infrastructure. It will be completed in phases with targeted production numbers ranging from 50,000 vehicles in the first phase to 400,000 in the fourth phase.

AI: How have automotive OEMs responded?

Burton: OEMs are learning about the many benefits, and are moving into the market. By the numbers, total sales should exceed $20.5 billion by 2015 compared to $16.24 billion in 2012. On the manufacturing side, companies are looking at utility and industrial land pricing as low as $0.032 per KwH and $0.26 per square meter, respectively. Additional benefits include duty drawback, duty-free importation of machinery and equipment for projects, and no export duties within the 17 countries of the Greater Arab Free Trade Area. Meanwhile, investment authorities, such as the Saudi Industrial Development Fund and the Public Investment Fund, are providing medium and long-term loans that cover up to 75% of project cost and tenures that extend up to 20 years.

AI: How attractive is Saudi Arabia to US car makers?

Burton: At our event in June representatives from the major U.S. manufacturers spoke candidly about the excellent growth opportunities for manufacturing and services in Saudi Arabia, which imported 982,000 vehicles in 2012. That is a 33% increase in numbers and 42% increase in value from 2011. That kind of growth is a clear indicator that Saudi Arabia and the greater Middle East and North Africa region are offering robust opportunities for the companies willing to invest time and money.

AI: How have investments from companies like JLR and Isuzu Motors impacted the perception of global automotive OEMs?

Burton: Names like Jaguar Land Rover and Isuzu are certainly raising awareness about the viability of manufacturing in Saudi Arabia. At the same time, there are ongoing joint ventures with Johnson Controls and Denso on the OEM side that people occasionally overlook.

AI: What are some of the issues that still need to be tackled?

Burton: One issue is the need to provide correct information to international companies. We regularly see firms that have operations around the globe but have misconceptions regarding the Saudi market. Another issue is that the industry is relatively young and the Saudi Government is working to streamline the development process and remove barriers to entry.

AI: How does the USSABC hope to meet these challenges?

Burton: Our core mission at the USSABC is helping U.S. and Saudi companies build successful partnerships.

AI: It’s the 20th year anniversary of the council – what are some of the initiatives USSABC is planning for this year?

Burton: We are excited as we have emerged from a top-to-bottom review of our mission, efficacy of programs, events, and activities, and strategies for future growth. In collaboration with Booz & Company, we conducted an analysis of our organizational strengths and challenges, methods of improving our alignment to the developmental goals of Saudi Arabia, and the impact the USSABC is having on the U.S.- Saudi strategic relationship. Now that we are in the early stages of implementing that plan, we are bringing a renewed focus to key industrial sectors. The automotive sector is a perfect tie-in for those goals and promoting the sector has allowed us to leverage our relationships with key Saudi partners to USSABC members and U.S. companies. Our efforts at the conference also established new relationships with major stakeholders, such as NICDP and Sadara Chemical Company that we look forward to strengthening over the next 20 years.